China dials up scrutiny of IPO hopefuls with on-site inspections, leaving investment bankers anguished

The Shanghai and Shenzhen stock exchanges, the country’s largest bourses, have accepted zero IPO applications since the start of the year

As deals slump, many bankers have been idled at home for several weeks, says an executive who works at a major Chinese brokerage

3-MIN READ3-MIN

The Shenzhen and Shanghai stock exchanges have accepted zero IPO applications this year. Photo: Handout

Published: 12:37pm, 8 May 2024

Chinese regulators are scrutinising old business deals and even the personal bank accounts of senior executives as they ramp up inspections of stock-listing hopefuls to slow the pace of fresh fund raisings and boost secondary markets, according to 10 sources.

The on-site inspections of companies often involve the seizure and examination of mobile phones and laptops belonging to top executives, said two of the sources with knowledge of the matter, methods traditionally used by authorities to probe insider trading cases.

The moves have resulted in a growing list of local companies withdrawing initial public offering (IPO) applications. China’s securities regulator has said it aims to ensure only high-quality firms or those operating in industrial sectors favoured by Beijing are able to tap the market.

The China Securities Regulatory Commission (CSRC) said last month on its website it would conduct on-site inspections on 20 per cent of IPO applicants this year, four times last year’s goal, after tightening rules on such inspections in March.

The sources declined to be named due to the sensitivity of the matter. The CSRC did not respond to requests for comment.

People crossing a street in Shanghai, near a building showing stock market and economic data on March 20, 2024. Photo: EPA-EFE

The heightened scrutiny of IPO candidates has spread disquiet in what was until last year a booming business, forcing investment banks to cut jobs and pay. More than 130 Chinese IPO candidates have terminated their listing plans this year, according to stock exchange data, led by Swiss agricultural and seeds group Syngenta’s US$9 billion offering in Shanghai.